Monday, February 27, 2017

Why Double Standards? Investment Advice from Women

Let’s start with two facts that are not very well known. The
first is that investment professionals actually share advice sometimes,
although it happens in certain closed online platforms. By investment professionals I mean people who
are managing money, such as mutual fund or hedge fund managers. They are
different from stock analysts, who are professional advisors, not professional
investors. The second, which it bothers me even to need to write, is that some
investment professionals are women. Unfortunately, women are a small minority
in this field.

So when investors look at advice posted by investment
professionals, do they evaluate the advice from men and women equally, or is
there a double standard? This is the topic of research in Administrative Science Quarterly by Tristan Botelho and Mabel Abraham, who examined whether and when
women’s advice is valued less than men’s advice. Notice how interesting this
context is for examining double standards. Everyone is professional. All the
advice is on securities, which means that the outcomes can be traced to see whose
advice is better. (In case you wonder, there is no difference between men and
women.) Oh, and this is all online, so the evaluators are reading text and
thinking about the reasoning.

That does not stop double standards from appearing. Investors could see the names of the people
posting recommendations before deciding whether to open them, and they were less
likely to open and look at a recommendation written by a woman. Women were
about 25 percent more likely to be ignored. Female readers of this post can
consider whether that sounds familiar.
Investors were especially likely to ignore female investment
professionals when they had a lot of information to sift through. This evidence matches what we already know,
but it is powerful evidence from real professionals making decisions about
substantial amounts of money.

Now for something we didn’t know. After seeing the advice,
the investors can voluntarily rate its quality and give comments. How large was
the double standard in the rating? There wasn’t any. This demonstrates an
important difference in how double standards are used. They are a first-cut way
of approaching someone’s value and performance, but once individuals have more
time to process information and think, double standards decline and may even
disappear. Whether they typically disappear in other contexts, we don’t know. Investors
need to think very carefully about their decisions and may turn out to be less
biased after considering a recommender’s information than people in many other
roles are. Possibly they are less biased than others with significant responsibilities,
such as politicians.